⚡ Key facts: The nil-rate band is £325,000 per person in 2026. Estates over this pay 40% on the excess. About 4% of UK estates pay IHT. Strategies like gifts, trusts, and charitable donations can reduce or eliminate the tax burden.
What Is the IHT Threshold in 2026?
The "nil-rate band" or "threshold" is the amount you can leave tax-free:
£325,000 per person — This threshold has been frozen since April 2009. Married couples can combine their thresholds: up to £650,000 tax-free.
On top of this, there's a "residence nil-rate band" of £175,000 if you leave your home to direct descendants (children, grandchildren, adopted children). This increases your total tax-free threshold to:
| Situation | Tax-free threshold |
|---|---|
| Single person, no home left to children | £325,000 |
| Single person, home left to children | £500,000 |
| Married couple, no home to children | £650,000 |
| Married couple, home to children | £1,000,000 |
Who Pays Inheritance Tax?
Only a small percentage of UK estates pay IHT:
- ~4% of estates pay any IHT at all
- Most people's estates fall below the £325,000 threshold
- If you're married, you can pass unlimited amounts to your spouse tax-free
- Gifts to charities are exempt from IHT (and give 40% relief on the rest of the estate)
However, in wealthy areas (London, South East, affluent suburbs), a much higher percentage of estates are affected — because property values push them over the threshold.
How Much IHT Do You Pay?
IHT is calculated on the value of your estate above the threshold:
| Example estate value | Calculation | IHT due | What beneficiaries receive |
|---|---|---|---|
| £325,000 | £325,000 - £325,000 = £0 taxable | £0 | £325,000 |
| £400,000 | £400,000 - £325,000 = £75,000 taxable @ 40% | £30,000 | £370,000 |
| £500,000 | £500,000 - £325,000 = £175,000 taxable @ 40% | £70,000 | £430,000 |
| £1,000,000 | £1,000,000 - £325,000 = £675,000 taxable @ 40% | £270,000 | £730,000 |
The IHT rate is a flat 40% on amounts above your threshold. There are no higher or lower bands like income tax.
What's Exempt From IHT?
Several categories of assets and transfers are completely exempt from inheritance tax:
1. Gifts to Your Spouse or Civil Partner
Unlimited amounts can pass to a spouse tax-free, regardless of estate size. This is the "spousal exemption".
If you're married and your estate is £2 million, you can leave all of it to your spouse with no IHT due. When they die later, their estate gets its own £325,000 threshold.
2. Gifts to Charities
Leave 10% or more of your estate to a registered UK charity, and you get:
- No IHT on the charitable portion
- 40% relief on the rest of your estate (reduced rate: 36% instead of 40%)
Example: £500,000 estate, leave £50,000 to charity. IHT on remaining £450,000 (minus £325k threshold) = £125,000 × 36% = £45,000 (saves £5,000).
3. Gifts to Your Children (Under Certain Conditions)
Gifts made more than 7 years before death are completely exempt from IHT ("potentially exempt transfers").
The 7-year rule:
- 0–3 years before death: Full IHT at 40%
- 3–4 years before death: 80% of the IHT (32%)
- 4–5 years before death: 60% of the IHT (24%)
- 5–6 years before death: 40% of the IHT (16%)
- 6–7 years before death: 20% of the IHT (8%)
- 7+ years before death: No IHT (0%)
4. Annual Exemption
You can give away up to £3,000 per year tax-free (per person). Unused allowance can be carried over one year. Gifts on marriage (£5,000 per parent) are also exempt.
5. Small Gifts Exemption
Gifts of up to £250 per person per year are exempt (and don't count toward the £3,000 annual allowance).
6. Normal Expenditure from Income
Regular gifts from your income (not capital) — such as paying for a grandchild's school fees or an adult child's holiday — are exempt if you can show it's a normal pattern and you can afford it from your annual income.
The Residence Nil-Rate Band Explained
If you leave your family home (or a share of it) to direct descendants (children, step-children, grandchildren, adopted children), you get an extra £175,000 threshold.
Conditions:
- The property must be your main residence (or former main residence)
- Must be left to direct descendants
- Applies only if you die on or after 6 April 2017
- Tapers out if your estate exceeds £2 million
Example: You own a £400,000 home and leave it to your daughter. You also have £150,000 in savings. Total estate: £550,000.
- Standard nil-rate band: £325,000
- Residence nil-rate band (home): £175,000
- Total tax-free: £500,000
- Taxable amount: £550,000 - £500,000 = £50,000
- IHT due: £50,000 × 40% = £20,000
Strategies to Reduce Your IHT Bill
1. Make Gifts Early (7-Year Rule)
The most effective IHT planning is giving money away more than 7 years before you die. Each gift outside the 7-year period is completely exempt from IHT.
Example: In 2019, you give your daughter £100,000. You die in 2026 (7+ years later). That £100,000 is completely exempt from IHT — it's not counted in your estate.
2. Use Your Annual Exemption
Give away £3,000 per year (per person) and you'll reduce your estate by £3,000 without any IHT consequence. Over 10 years, that's £30,000 tax-free.
3. Set Up a Trust
Certain trusts (like life interest trusts) can be more tax efficient than passing assets directly. Assets in the trust may not count toward your estate for IHT purposes.
4. Leave Your Home to Your Children
The residence nil-rate band (£175,000) only applies if you leave your home to direct descendants. If your home is worth £300,000+, this could save significant tax.
5. Donate to Charity
Gifts to registered charities are completely exempt from IHT. Leave 10% to a charity and get a 36% tax rate on the rest (instead of 40%).
6. Make Full Use of Spouse Exemption
If you're married, pass as much as possible to your spouse (tax-free). They then have two nil-rate bands when they die (their own £325,000 plus any unused from you).
7. Use Life Insurance
Take out a life insurance policy written in trust. When you die, the payout goes directly to beneficiaries outside your estate — tax-free and doesn't count toward IHT.
IHT Planning for High-Value Estates
If your estate is likely to exceed £500,000 (or £1,000,000 with a spouse and home to children), consider working with a tax specialist or accountant who can:
- Model different inheritance scenarios
- Identify which assets attract IHT
- Design a multi-year gifting plan
- Set up appropriate trusts
- Optimize the use of spouse exemptions
Professional tax planning can easily save tens of thousands of pounds.
Plan Your Estate Efficiently
A properly structured Will with tax-efficient provisions can save your family significant amounts. Start with Clear Legacy from £69 — includes expert guidance on IHT minimisation.
Create Your Will Now →Frequently Asked Questions
Will the £325,000 threshold ever increase?
It has been frozen since 2009. The Government has committed to freezing it until at least 2030. There's no official announcement about increases after that. Historically, thresholds increase with inflation, but it's frozen for now.
Do I pay IHT on my pension?
Usually no. Most pension death benefits pass directly to beneficiaries (or into a pension trust) outside your estate — so they're not subject to IHT. Check your scheme rules to confirm.
What about a family business — do I get IHT relief?
Yes. Agricultural property and business property relief can reduce or eliminate IHT on qualifying business assets. If you own a business, consult a tax specialist about relief available.
Can I reduce IHT by putting assets in my children's names now?
Yes, but be careful. If you gift assets to children and then die within 7 years, the gift is still subject to IHT (taper relief applies). However, if you can afford 7 years, this is one of the most effective planning strategies.
What if my spouse dies first — can they pass their unused nil-rate band to me?
Yes. The "transferable nil-rate band" lets you use your deceased spouse's unused allowance when you die. So if your spouse had a £325,000 threshold and left everything to you (tax-free), you can then use that £325,000 again when you die — doubling your personal threshold to £650,000.